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2/20/2007

Government’s Role in Increasing Hybrid Car Demand

Rebates, income tax credits, and increasing model availability are a few approaches used to increase the demand for hybrid cars. Toyota has asked for an extension and a boost on the 60,000 sales limit cap for each automaker for the income tax credit when buying a hybrid car. According to an article in USA Today, as the income tax credit for buying a hybrid has decreased, so has the demand for the Toyota Prius and other Toyota hybrid cars. With lowered demand a decrease in economies of scale for Toyota hybrids has become prevalent. Toyota is the only automaker giving this strong plea for an extension and a raised cap for the tax credit. Toyota was also the only car maker who reached the sales limit which was set by congress.

The government has subsidized the hybrid car industry to increase the demand of a product that they saw as beneficial to the environment in more ways then one. Is this going to be the only reason that the subsidy will continue or is there going to be another strong armed reason?

6 comments:

Whenever the government plays a role in something I always question what their true motive is. I personally don’t trust them. I feel that the government shouldn’t subsidize the hybrids. By them doing that it puts added pressure on us to purchase them. I personally don’t want to feel obligated to do something I don’t want to do.

Like economists love to say “on the other hand” maybe gently nudging its citizens to be greener is not all too bad? I mean consumers are pressured everyday from thousands of different sources to buy different products. Maybe this little pressure from the government gives automotive manufactures a needed demand in order to pursue even more environmentally friendly alternatives? Who knows?

Economists stress repeatedly, from day one, that taxes on individual products create 1) deadweight losses, and 2) transfers between buyers and sellers.

A subsidy creates a deadweight loss (in some other part of society), and a transfer from other parts of the economy to the buyers and sellers of hybrids.

What bothers me is that these are facts that are far more solid than the claims of environmentalists. We go through this stuff over and over again with subsidies for agriculture, air travel, military spending, and so on, and no one seems to get it.

And ... we're doing it again.

So ... Toyota wants a continuation of subsidies because it is good for their business? Who wouldn't? That's why we ought to discipline ourselves to say no.

Instead of a tax break for those willing to adopt hybrids, what about an increase in gasoline tax? That way, those who are not adopting 'greener' technology are paying the price, and the tax breaks of hybrids won't have to by lobbied for by Toyota. If you are using less gas, you are paying less in taxes. This still does not address the deadweight loss though.